Friday, March 9, 2007
It's become an investment cliché by now... for good reason.
If you've watched CNBC for more than 10 minutes in the past few weeks, you've probably heard a talking head telling you the best stocks to own during a market correction are "defensive" stocks...
Drugs... food... beer... This is the stuff folks are going to buy no matter what's going on in subprime lending or the U.S. dollar. What you're not hearing about is what I consider to be the epitome of a "defensive" sector: Medical devices.
Medical devices really are a no-brainer place to park your money for the next decade... as baby boomers age and America's waistline expands, medical devices – like drug-coated heart stents, pacemakers, defibrillators, joint replacements, surgical tools, and diagnostic machines – are going to be more and more in demand.
The world's largest health care companies want to be ready for the boom. Last year, Boston Scientific (BSX) and Johnson & Johnson (JNJ) got into a heated bidding war for Guidant, which makes a laundry list of heart devices. BSX eventually prevailed, with its $27 billion offer. Have a fantastic new knee replacement idea? Johnson & Johnson would like to speak with you...
Public companies aren't the only ones pouring money into medical devices. Venture capital spending in medical device start-ups was up 25% in 2005. This number dwarfed investment levels in the biotech sector, which actually declined 7%. Early last year, Small Bone Innovations, which works in bone and joint replacements, fetched $42.2 million of VC money.
Private equity is jumping into the medical device boom, as well. In December, Biomet, which has the fourth-largest share of the hip- and knee-replacement market, agreed to a private-equity buyout for $10.9 billion.
Device companies offer premium-priced, high-margin products that can produce big cash flows. As a result, the sector attracted some heavy-hitting health care investors last year, like the Schwab Health Care mutual fund (SWHFX), which has three of its top 10 holdings in the medical device sector.
People are living longer and they want to remain active. Whether it is more durable knee replacements, less-invasive surgical tools, or artificial hearts – medical devices are the future of health care.
If we're in for a broad market decline, the case for medical device makers gets even stronger. Get into the best medical device stocks before the investment crowd recognizes the potential here, and you'll make large, safe gains all year... no matter where the S&P goes.
Strong agricultural prices boost fertilizer producer Terra Industries to another new high.
Another chance to get short emerging markets? Many foreign ETFs rallying back to their 50-day moving averages.
A stealth bull market in electrical and telecom infrastructure… new highs for Quanta Services and Dycom.